Where to Begin with Financial Planning?

Starting the financial planning process may seem daunting, but the right guidance can help alleviate anxiety about it. Identify your financial goals, create a realistic budget, and determine how you want to invest, spend, and save to meet your objectives. Consider hiring a financial advisor or planner if you need more help.?

By Brandi Fowler

Creating a solid financial plan can help you prepare for the future, save for retirement, or achieve short-term financial goals.?

Knowing where to begin can be daunting, but with the right knowledge, you can create a financial game plan that works best for you. One of the first steps is understanding the benefits.

A financial plan helps you put purpose behind your paycheck, for starters, said certified financial planner and Pashman Financial, LLC founder Max Pashman.

“Without having that sense of direction, we don't really know where we are positioning ourselves for the future,” Pashman said. “We are in a bear market right now, [we are experiencing] inflation, layoffs are happening, things are very unpredictable. So, we have to better prepare ourselves for how any of these things will impact us. Having the right plan together keeps us better prepared.”

Try to understand why you want a financial plan, Pashman said.?

“It boils down to what you want to use your money for, who you want to plan for, where you want to invest, and when you need your money,” Pashman said. “Simple questions like this can help steer people, pointing them in the right direction to get started.”

Also, don’t be overwhelmed as you create your plan.?

“Once you figure out where [your finances stand], focus on one or two areas that you think that you can drive change,” said certified financial planner Natalie Taylor. “Making small, incremental progress will build momentum over time. If you know you need to save 15% of your income for retirement and that feels overwhelming, start with 1% or 2% and put a reminder in your calendar every January to increase by 1%.?

“That incremental progress will get you to where you need to go and build momentum and empowerment along the way to keep you moving.”

Keep It Simple When you Start Financial Planning?

Trying to tackle every aspect of financial planning at once might make your head spin, so instead, keep it simple at the start.?

“A good first step is to get a sense of where you are now, and understand what you own,” Taylor said. “So, assets, checking accounts, savings accounts, any investment accounts, if you own a home, those are your assets. What you owe is all of your debt, all of your liabilities. Get a sense of where you stand from a net worth perspective so you can prioritize and say, ’Where do I need to focus?’”

Start by pinpointing your cash flow. Ask yourself how much money you have coming in — and if there is additional cash flow, i.e., bonuses or self-employment income, Taylor said. Also, determine your monthly living costs.?

Then you can determine how to better handle your finances, if you need to cut debt, focus on budgeting, etc.?

Understanding your relationship with money can help too.?

“[Ask yourself] ‘How have I dealt with [money] growing up?’” Pashman said. “'How do I deal with it on a daily basis and how do I feel about it for the future?’ How we feel about how we make money, spend money, and put it on the side is going to determine how we allocate this plan accordingly.”

List your financial goals after asking yourself those questions.?

“When you understand what your goals are and what you are trying to accomplish, the next step is to determine how you can do it with your income, expenses, and savings,” Pashman said.?

“Operate as though you are operating a business. What can you do on your side to drive more revenue for yourself? Is it what you are doing with your current income right now? Is it taking on additional sources of income or could you get strategic with it?”

Start putting your budget together after self-assessing.?

Create a Budget When Financial Planning

Constructing a budget helps you visualize your income and expenses. It is an asset when beginning and continuing your financial planning.?

“For the vast majority of people, unless you are really close to retirement and have a bunch of money in a portfolio, our biggest leverage is extra cash flow we can create,” Taylor said. “It is our income minus expenses, leaving a remainder that can be used for goals.?

“Managing that number and trying to increase that number is the most critical piece to being able to accomplish what you want to accomplish. Whether that's buying a home, building your emergency fund, paying off debt, or getting to the point where you're financially independent and work is optional.”

Determine how to best manage your cash flow when trying to stick to your budget, Taylor said.?

“Some people like to use a very detailed way of tracking every penny with a digital platform,” Taylor said. “Others just need a sense of, ‘I've got my fixed expenses, I've got my flex expenses, and I've got my non-monthly expenses. And as long as I'm spending within the number, it doesn't really matter if it was a little more for coffee or a little more for restaurants.

“Finding a budgeting philosophy that feels like home for you, that feels comfortable and that you can stick with over time is more important than [trying to track every penny]..”

Move to investing and building wealth.?

Learn How to Invest When You Begin Financial Planning

One of the key pillars of a financial plan is investing. But ask yourself when you need your money before dumping cash into the stock market, Pashman said.?

“That will determine where you should be allocated as far as types of accounts for the purposes of taxes and fees,” Pashman said. “But also how you should be invested too because if you need your money one year from now, it will be different from how you invest your money if you need it 10 years from now.?

“Understanding your goals will help determine how you can invest what you've gained from that difference.”

Taylor suggested paying debt before investing.?

“If you have debt above 7%, I would focus your dollars there,” Taylor said. “And to build an emergency fund of three to six months of income, because investment accounts can have extra costs, sometimes taxes and penalties if you need to get the money out before the longer term.”

“The one exception is if your employer offers a retirement plan like a 401(k) and they offer a matching contribution. It can make sense to start there, even if you are still working towards those emergency funds and high-interest debt payoff goals.”?

Employer plans like 401(k)s or Roth IRAs can help grow your money and give you tax benefits, Pashman said.?

Consider Hiring a Financial Advisor If You are Struggling to Start Financial Planning?

A financial advisor or planner can help you create your budget and/or construct a financial plan. This can be advantageous if you’re struggling with your plan.?

“Financial coaches can be helpful when you are trying to focus on budget and debt reduction and building up an emergency fund,” Taylor said. “Financial coaches are ideally suited to help in that phase. And then I think once you move beyond that phase where you have built your emergency fund, you have paid off credit card debt and you are looking towards longer-term goals, that is a [better time] to consider engaging a financial advisor.”

Top Takeaways

Where to Begin with Financial Planning?

• Keep it simple. Look at your income and expenses and examine your relationship with money to kick-off your financial planning.?
• Construct a realistic budget and consider ways to increase your income and achieve your financial goals.?
• Determine how to invest to build wealth after identifying your income, expenses, and how much to allocate to your emergency savings fund.?
• Consider hiring a financial planner or advisor if you need additional help.